An Exploratory Study on Managing Fixed Customers: Cases of Australian B-to-B Business

This study explores whether three Australian companies enhance customer relationships using information provided by Fixed Revenue Accounting (FRA). Employed over a long period in Japan’s service culture, FRA uses accounting information to identify customer segments, assess the financial importance of fixed customers in particular, and set customer service strategies to maximize firm performance. A case study was conducted to explore whether FRA could be transferred to a non-Japanese business context. Data was collected through interviews guided by a structured questionnaire and analyzed by applying the KJ (Kawakita Jiro) method to categorize how interview respondents define fixed customers and assess their financial significance. For FRA to be successfully adopted, firms must share its underlying principles, follow its analytical procedures, and commit themselves to long-term customer relationships. We found this to be the case among the three Australian business-to-business enterprises. We conclude that FRA could be employed in Australia to establish favorable long-term customer relationships.


Introduction
Numerous marketing concepts fall under the practice of Customer Relationship Management (CRM), including relationship marketing (Levitt, 1983), customer intimacy strategy (Treacy & Wiesema, 1995), and customer satisfaction and loyalty (Heskett, Jones, Loveman, Sasser Jr., & Schlesinger, 1994). Among the most important concepts in modern marketing, CRM involves more than acquiring information about customers or managing their "touch points" to maximize loyalty-it FRA has flourished in Japan's service culture-called omotenashi (hospitality)-in which companies use customers' feedback to meet their needs (Belal, Shirahada, & Kosaka, 2013). Research shows that two Japanese Business-to-Consumer (B-to-C) companies  and one Businessto-Business (B-to-B) company (Ishii, 2014) used FRA to determine whether they could foster customer relationships using accounting information. FRA categorizes customers as fixed and non-fixed because fixed customers contribute more to profitability, stability, and growth (Ishii, 2014;Suzuki, Matsumoto, & Matsuoka, 2006;. In particular, fixed customers bring sustained revenues (Suzuki, 2008).
However, no Japanese research explores whether non-Japanese companies share the customer relationship principles that underlie FRA. Through case studies, this study explores how three Australian B-to-B companies identify and serve fixed customers. We conclude that their strategies and practices coincide with FRA and thus could be beneficially established in Australia.
The paper is organized as follows. Section 2 reviews the literature. Section 3 explains the research method. Sections 4 and 5 report and discuss findings from interviews. Section 6 concludes and raises issues for future research.

Theoretical Background of Fixed Customers
FRA classifies customers by the strength of their relationships with companies and identifies fixed customers as those who make repeat transactions (Suzuki, 2005). The theoretical background concerning income momentum (Ijiri, 1986) and fixed revenue (Glover & Ijiri, 2002) originates in momentum theory. To understand momentum theory, consider that revenue of $10 million/month will produce $10 million over one month, whereas $10 million/month yields $120 million over 12 months.
Marketing research measures the strength of relationships in terms of customer loyalty, which is a combination of customers' intentions to repurchase a good or service and their willingness to recommend it by word of mouth (Chitturi, Raghunathan, & Mahajan, 2008;Williams & Naumann, 2010). FRA facilitates this marketing approach by defining fixed customers according to repurchase behavior.

Ways to Define Fixed Customers
Fixed customers are recognized as strategically important customers. They are defined based on the measurements that reflect certain patterns of transactions in a period under consideration (Suzuki, 2012). Case studies on FRA revealed that fixed customers are defined by the frequency of transactions during a specified period Ishii, 2014). In  study of Retailer A and Hotel Chain B, Retailer A defines fixed customers by frequency of transactions over two years (see Table 1).  (2007) Hotel Chain B defines fixed customers as "super loyal" and "loyal" on the basis of frequency of yearly visits (see Table 2).  (2007) Ishii (2014) investigated the impact of introducing FRA on profitability and growth based on the findings in relation to Company C 3 , a specialized trading and electronic component manufacturer. The company sells own products and products made by Company D. It segments customers by number of transactions and style of promotion ("relying" and "on company C's own"). Products promoted and sold by Company D are not attributed to efforts by company C; and it is referred to as "relying". Products promoted and sold by Company C are considered "Company C's own". To qualify as a fixed customer, a client must place an order at least once a year over a period of more than three years (see Table 3). In addition, Suzuki (2008) interviewed eight part-time graduate students about measures to define fixed customers. Interviews show that fixed customers are defined depending on years in which the sales were made, years of transactions, and frequency of transactions; amount of sales plus length of transactions, and criteria expressed by the chief executive officer or the area sales manager based on their own judgment, or history of buying primary products (Suzuki, 2008). Table 4 shows the result of this interview.
Building on previous research, this study poses the following question: RQ1: How do Australian companies define fixed customers?

Importance of Fixed Customers
Empirical research has established that fixed customers stabilize revenues and profits and boost revenue growth (Ishii, 2014;Suzuki et al., 2006;. As  noted, fixed customers comprised 30% of Retailer A's customers and yet accounted for 80% of its contribution margin. Therefore, we posed the following research question: RQ2: How do fixed customers contribute to financial performance in Australian companies?

Building Relationships with Fixed Customers
Because revenue from fixed customers can be significant and sustainable, companies tailor their marketing efforts to cultivate long-term relationships. Personal selling is the conventional method through which companies develop long-term relationships (B. Sharp & Sharp, 1997;Swan, Trawick, & Silva, 1985;Kotler et al., 2009). Customer loyalty programs are prominent tools for maintaining such long-term relationships with the customers (B. Sharp & Sharp, 1997). Airlines and hotels reward customers who make frequent or volume purchases. Harley-Davidson sponsors the Harley Owners Group, which gives members a touring handbook, roadside assistance, customized insurance, and a travel center (Kotler et al., 2009). Therefore, the following research question arose: RQ3: How do Australian companies establish relationships with fixed customers?

Methods
We studied three Australian companies to explore the possibility of FRA introduction. FRA has already been introduced among Japanese companies. In Australian companies, however, the introduction of FRA has never been attempted. Even though the interest and the ability to deliver customer service in Australian companies is not strong (Pulendran, Speed, & Widing, 2000), FRA could be introduced if they segment customers or practice CRM.
We chose the interviewed companies by asking 10 Australian companies whether they run a customer segment accounting or practice CRM so that we could explore the possibility of introducing FRA. This sampling will be appropriate to answer our research questions. Three companies agreed to participate in the interviews. Companies A and C run a customer segment accounting, while Company B practices CRM. Table 5 presents a brief description of the interviewed companies. We employed the case study method (Yin, 2014) because it presents real-world situation in contexts that are important for understanding conditions relevant to the issues studied. Case studies allow researchers to cope with technically distinctive situations with many variables of interest. They provide multiple sources of evidence and situate results within the development of theoretical propositions to guide data collection and analysis (Yin, 2014).
This study examined multiple case studies that are "intended to strengthen its ability to generalize while preserving in depth description" (Herriott & Firestone, 1983, p. 14). In addition, Yin (2014, p. 57) reiterates Herriott & Firestone's (1983) view by stating that "the evidence from multiple-case studies is often considered more compelling, and is therefore regarded as being more robust." We conducted interviews with a structured questionnaire. We collected primary data by taking notes and transcribing recorded interviews. Table 6 is an overview of the interview. We analysed the data using the KJ method introduced by Japanese geographer and cultural anthropologist Jiro Kawakita. This method begins by creating groups of themes through card making. After creating groups, groups of cards are classified based on a theme of high priority. Based on this classification, a chart which reflects certain patterns is developed by grouping and connecting each group. Finally, explanations and results are built in each topic groups (Kawakita, 1967). White, Behara, & Babbar (2002) used the KJ method to analyse data from customers' feedback and identify customer experience patterns. Cheng & Leu (2011) applied the KJ method to clarify clusters of bridge construction defects. This method also has been utilized in development projects in numerous countries for identifying problem solving approaches (Scupin, 1997).

Ways of Defining Fixed Customers
Interviews revealed that Company A defines customers by sales and defines fixed customers as the 20 that account for the highest sales. As an electrical engineering and service manager stated, We segment by industry. We serve a [sic] power generation, mining, industrial, and commercial firms. We also look at how much clients spent each year. I guess the top 20 indicate repeat business. We look at just the top 20.
Company A's business is project based and recurring, but its market is limited. It tries to maintain good relationships with its top 20 companies as a strategy. As the manager explained, We would be lucky to establish good relationships with one or two companies. We might acquire more work with new customers; however, to acquire a client in reality and get consistent business from the same is very difficult. It might take one whole term or more than that to do so. … That's the key to trying to get loyal clients. However, the main industry is a really hard market to acquire new clients.
Company B defines fixed customers as those who buy its core products and will likely do so for the next term (weekly or monthly). Its core products have high contribution margins, so the strategy is to emphasize sales of these products. Subjective judgments by territory managers and salespeople determine whether customers are likely to buy products during the next term. An area manager explained, [Type] 'A' customers have very good potential and are also very loyal. … Ah, we have a range of products, we classify a product as something like core product since we are manufacturers. … So we define the whole market with core products. … Those [type] 'A' customers support the core product very well and there is a lot of potential with non-core products as well. We consider this purely on the subjective opinion of the territory manager.
In addition, Company B shuns repeat transactions with customers because of freight costs. An area manager explained,

We prefer less frequent [transactions]. Frequent is a highly cost wasteful service.
Company C defines fixed customers as those who have purchased products for 12 months and generated at least $10,000 in revenue. Its strategy is to cultivate customer relationships because its business is project based and the Australian market is limited. Typically, once a project exceeds 12 months, customers are likely to continue as long-term customers. As an area manager explained, In FRA research, fixed customers are defined depending on the amount of sales, number of years that transactions have taken place, frequency of transactions, combination of amount of sales and number of years that transactions have taken place, and so on (e.g., chief executive's judgment, area sales manager's judgment, or customer who buys main products) (Suzuki, 2008). Company A defines fixed customers according to the amount of annual sales. Company B defines fixed customers as those who buy core products and have the potential to continue transactions on a weekly, monthly, or quarterly basis. Company C defines fixed customers by transaction term (12 months) and number of sales. Respondents generally define fixed customers by the same criteria specified in FRA research.
The new finding is that the result of company B reflects new measures to define fixed customers. Company B defines fixed customers as those who buy core products (high profitability) infrequently (lower freight costs). This suggests that it is necessary to consider profitability when companies define fixed customers.

Financial Impact of Fixed Customers
The financial impact of fixed customers was significant at the three companies that participated in the case study. Company A indicated that 90% of sales are from fixed customers and that revenue from fixed customers will grow over the next 10-15 years. An electrical engineering and service manager said, Approximately 85% of Company C's sales come from fixed customers. Fixed customers of its utility business tend to remain with the company for 20 years, although fixed customers of its residential and commercial services remain for 1-5 years. Notably, standards of customer longevity vary among industries. An area manager confirmed, We have some customers for more than twenty years. That's a utility customer, because utility is really gained only once a product is testified, used in different situations, and when the customers know the product. Customers don't necessarily change often. … As long as product is good quality and it functions well, they don't want to change. … In terms of commercial and residential projects, it's extremely competitive, and then you see a lot of different customers coming in. So there will be a lot of competition in one to five years, but I do not have data to support.
Interview results show that revenue from fixed customers has a significant impact on financial performance. In the case of company A, the proportion of total sales gained from fixed customers is 90%. Regarding company B, the proportion of total sales gained from fixed customers is between 80% and 85%. Company C's proportion of fixed customers' sales is 85%. These results are the same as case studies on financial impact of fixed customers (Ishii, 2014;Suzuki et al., 2006;. In addition, revenues from fixed customers persist 10-15 years at Company A and 15 years at Company B. The duration of the revenue stream at Company C depends on the industry, but revenues of its utility customers persist about 20 years. These results show fixed customers have certain period transactions with regard to income momentum (Ijiri, 1986) and fixed revenue (Glover & Ijiri, 2002).

Ways to Create Relationship with Fixed Customers
Since the financial impact of fixed customers is significant and sustainable, it is necessary to find out how to create favorable relationships with them. Company A has the potential to retain customers for extended periods and believes that premier service is the best way to retain them. Therefore, a manager visits one or two customers each week to ascertain their needs or problems and to craft tailored solutions. Besides fostering long-term relationships, these visits encourage word-of-mouth endorsements to attract new customers. An electrical engineering and service manager affirmed, Company C sponsors training and social events for fixed customers, and salespeople provide technical assistance and problem-solving. An area manager says, I think, generally, for fixed customers, a lot of segmentation activities are long term. … For fixed customers, we absolutely have frequent trainings, maybe social events, marketing activities, and we make visits to provide technical assistance. We also provide service, so the service department needs some assistants.
Since the financial impact of fixed customers is significant, each company conducts marketing activities. Interview results show that the sales people of the three companies visit their customers to find out their needs and problems in order to retain their relationship with customers. They also provide presentations about products and services and conduct training and technical assistance when they visit fixed customers. These results show that the approach to retain fixed customers is similar to personal selling (Kotler et al., 2009;B. Sharp & Sharp, 1997;Swan et al., 1985).

Discussion
As discussed by Suzuki (2012), definitions of fixed customers must dovetail with company strategy. Fixed customers are defined based on the measurements that reflect certain period transactions (Suzuki, 2012). Our research findings indicate that fixed customers are so defined because they are strategically important. Company A enjoys repeat business, but the Australian market is small and new customers are few. Its strategy is to engender good relationships with its top 20 customers. Company B shuns repeat transactions and defines fixed customers as those who buy a range of core products and are potential long-term customers. Company C focuses on good relationships with customers in response to Australia's market conditions, where a number of competitors are serving a relatively small number of customers.
These fixed customers contribute to financial performance, as discussed in previous research (Ishii, 2014;Suzuki et al., 2006;. Revenue of fixed customers also has certain period transactions with regard to income momentum (Ijiri, 1986) and fixed revenue (Glover & Ijiri, 2002). This tendency shows that revenue from fixed customers is relatively long in the case of B-to-B companies. In addition, it might be necessary to consider sustainability (Glover & Ijiri, 2002) when Bto-B companies define fixed customers.
To develop a long-term relationship with fixed customers, the three companies conducted marketing activities resembling personal selling (Kotler et al., 2009;B. Sharp & Sharp, 1997;Swan et al., 1985). In addition, these results might reflect a feature of B-to-B marketing because three companies directly contact customers and provide what customers want in order to develop long-term relationships with customers.
The important finding is that our three sampled Australian B-to-B companies reflect Japanese companies in seeking to cultivate long-term customer relationships. This finding contravenes the acquired knowledge that Australian companies have little interest in customer service (Pulendran et al., 2000) and therefore in cultivating customer relationships.

Conclusion
This study has sought to determine whether FRA might be successfully introduced in countries other than Japan, where it has flourished in a service culture that spans over millennia. FRA identifies customer segments, assesses the financial importance of fixed customers in particular, and guides customer service strategies to maximize firm performance. For FRA to be adopted successfully, firms must share its underlying principles, follow its analytical procedures, and commit themselves to longterm customer relationships. We found this to be the case among the three Australian B-to-B enterprises studied, and on the basis of these findings, we surmise that FRA could be potentially transplanted outside its Japanese homeland. Besides this theoretical contribution, this study advances business practice by documenting the relationship between business performance and their relations with fixed customers.
Several issues remain for future research. This study involved only three Australian B-to-B companies. It is necessary to interview a greater variety of companies to generalize our results. It is also particularly necessary to expand research into B-to-C companies, which have increasingly wide and dispersed customer base, making contact more difficult.